“It’s just so nice to finally see people doing software engineering in this space” (unsolicited comment at a recent conference I attended)

But why are we doing all this work? After all, public blockchains are red hot right now: prices reaching new highs, “Initial Coin Offerings” showing no sign of slowing and new innovations announced daily. Why is a strange firm called R3, which recently raised $107m to complete the build out of our open sourceCorda platform, heading off in what seems like a different direction? Aren’t we just building over-complicated centralized databases? Or solving a problem that nobody has?

To be honest, I thought the public blockchain community didn’t have much interest in our work… until Joel from our developer relations team visited San Francisco to deliver our Corda technical training. He had been nervous: many cryptocurrency ‘maximalists’ are West-Coast based… and he thought he would be in for a hard time.

Anyway… he needn’t have worried. The audience was the best he’d ever presented Corda to: uniformly respectful, engaged, questioning and inquisitive. And it made me realise: I’ve done a terrible job of explaining what we’re up to and why we’re taking the route we are.

What problem do enterprise blockchains solve?

Not only because, for the first time ever, we had a censorship-resistant, confiscation-proof, scarce, digital bearer asset…

… but because the architecture that Satoshi built to give us this amazing gift taught us something we didn’t previously know. It taught us that:

It is now possible to build systems that are operated by multiple parties, none of whom fully trust each other, that nevertheless come into and remain in consensus as to the nature and evolution of a set of shared facts.

In Bitcoin, the set of shared facts are: how many bitcoins have been mined and what conditions govern how they can be spent?

Newer platforms, such as Ethereum, build on these ideas and expand the set of facts over which we’re coming into consensus; in Ethereum’s case: what is the state of a shared world computer?

As we know, Satoshi set a very high bar for Bitcoin. It works when you don’t know who most of the participants are and it lets miners come and go at will without anybody even knowing who they are. Like I’ve long said, Bitcoin is a work of genius.

But a key point to stress is that those of us building enterprise blockchain platforms aren’t trying to build a better Bitcoin or even build a better Ethereum. (Why bother? They already exist!) Instead, the thing that interests us is the sentence above that I wrote in italics:

It is now possible to build systems that are operated by multiple parties, none of whom fully trust each other, that nevertheless come into and remain in consensus as to the nature and evolution of a set of shared facts.

This is tantalizing… because it suggests we could completely transform the economics and structure of entire industries. Not by introducing a new currency or decentralized governance model (that’s already being built out by the public blockchains, after all). But by also massively improving the efficiency of what already exists.

If we knew that all parties were in sync, we could accelerate securities settlement, optimize supply chains, liberate assets stranded in one silo for productive use elsewhere and more. Anywhere where trade is hampered because of inconsistent systems could be in scope for improvement. In short, we now have at our hands a new approach to solving one of the trickiest problems in transaction processing: the reconciliation problem.

If we could be sure that one firm’s IT systems were in perfect sync with their counterparts’ systems, it is mindblowing to imagine how much error, risk, duplication, complexity and cost could be eliminated… and how many hitherto impossible transactions became feasible.

In other words: quite separate to the well-understood revolution ushered in by the advent of Bitcoin, an entirely different field also got a massive kickstart. Two revolutions for the price of one.

It doesn’t sound as exciting as a new world currency, to be sure. But it could, in its own way, be utterly transformational. And note: the solution I’m talking about is not the same as a distributed database. And it’s not the same as a fully centralized solution. And it’s not another cryptocurrency or public blockchain. It is something new entirely.

Architecture

First, architecture. We set ourselves the challenge of building an enterprise blockchain that met the needs for the most demanding clients in business: the financial services industry. It’s why it’s the only enterprise blockchain designed to support interoperable business networks: we want ecosystems to be able to transact and to trade. And it’s why we built a platform that could easily talk to existing business applications and which businesses could actually deploy.

Contrast that with Fabric, part of the Hyperledger Project: written in Go, it uses a gossip network to spray data indiscriminately around the network, with a cumbersome “channels” abstraction bolted on to fix that problem. And rather than default to a SQL database, it offers a strange choice between a key-value store or a NoSQL document database.

JPMorgan’s Ethereum-fork, Quorum, is still a work in progress so it’s hard to comment but it has a talented team behind it. So I’ll just note in passing that the problem that Ethereum solves so well in the public blockchain world is very different to the problem that large institutions have. So it’s not immediately obvious why you’d use the solution to one as the foundation of the solution to the other.

Privacy

Secondly, privacy. Corda’s design, from day one, was based on an atomic, need-to-know privacy model that enables multiple different business networks and transaction types to co-exist and interoperate at the same time. Truly an interoperable network of networks is being built out.

Fabric’s design is very different. It has had at least two entirely different privacy designs in its short life and the latest, “channels”, suffers from all the same problems as other coarse-grained approaches to privacy: you end up with lots of mini-global-broadcast blockchains that don’t talk to each other and in which assets will get stranded; the opposite of the vision to which we’re building. You might get away with this design in some simple cases but will then come unstuck when you try to extend the solution.

Quorum’s approach is more innovative but I think it still fundamentally suffers from this problem.

The team does its work in public… join the conversation at slack.corda.net!

Finally: a note on terminology. In this post I used Blockchain and Distributed Ledger interchangeably. I tried for a long time to retain engineering purity (“Corda has chains of transactions but it doesn’t batch them into blocks so we probably shouldn’t call it a blockchain!”) But the reality is that the market uses the term Blockchain to describe all distributed ledger technologies, including ours. So I’m not going to fight it any more…!

I first wrote about Corda back in April and we demonstrated it in public for the first time a few weeks later. Since then, we’ve been continuing to develop the code base in collaboration with our members, trialling it through an ongoing series of proofs-of-concept, prototypes and more advanced deployments, refining the design and maturing our thinking.

As part of this process, we wanted to share more information with the broader community about what we’re doing. I’m pleased to announce the release of our first whitepaper on Corda: an introductory, non-technical overview that explains our vision, some design choices and outlines the key concepts underpinning the platform. We’ll follow this up in the coming months with a more detailed technical whitepaper.

The whitepaper, which you can download here, explains how we set ourselves the challenge of starting with the financial industry’s pain points: duplicated, inconsistent data and business logic and redundant business processes – and asked ourselves if we could apply breakthroughs in distributed ledger and blockchain technology to solve them.

Our conclusion is that distributed ledger and blockchain technology represents a once-in-a-generation opportunity to transform the economics of data management across the financial industry. But there’s a problem because the blockchain and distributed ledger platforms that led us to this exciting moment were never designed to solve the problems of financial institutions and do not meet all our needs: we need tight linkage to the legal domain; we have an obligation to prevent client data being shared inappropriately and so can’t send all transactions to all network participants; we must integrate and interoperate with existing financial infrastructure; and more.

Corda is the outcome of the analysis we did on how to achieve as many of the benefits of distributed ledger and blockchain technology as possible but in a way that is sympathetic to and addresses the needs of regulated financial institutions. Corda is intended to be a contribution to the plurality of technologies that will be adopted in the coming years, one that is targeted specifically and with a laser-focus on the needs of financial institutions.

I hope you find the whitepaper interesting and illuminating and we would love to hear your feedback.

But few, if any, financial firms are interested in censorship-resistant digital cash

So why are they looking at this technology?

Because some principles underpinning Bitcoin’s architecture – shared ledgers, for example – could be relevant to problems that banks face.

Sure, a blockchain or a replicated shared ledger could indeed be useful to banks. Perhaps it could reduce the need for reconciliation between firms if they all ran off a single ledger, for example. But this says nothing about whether blockchains are the optimal solution to any particular problem in banking. That still has to be argued, of course.

Recall: the bitcoin architecture was a solution to a very specific, very carefully framed problem – how to transmit value without the risk of censorship. Just because the underlying architecture could be used to solve some pressing problems in banking doesn’t mean it’s the best way to do so. Indeed, although the interlocking aspects of the Bitcoin solution are in some ways quite elegant, there are also some compromises. After all, it is an engineering solution to a set of very specific constraints and so it has to be demonstrated that it’s the right solution when the constraints are different.

Lee Braine, of Barclays Investment Bank CTO Office, made an important contribution to this debate when he spoke at London Blockchain Conference 2015 recently. The video is now available and I urge anybody working in this space to watch it and to internalise its message.

[vimeo 137190236]

We all too often “talk past each other” in the distributed ledger world and we are quick to assume the other person just “doesn’t get it”. I can assure you that Lee does get it and it would be a brave startup in this space that chooses to disregard what he said. He’s giving us free advice! Take it!

Like I say, watch the video for yourselves.

I think another way to capture the chain of logic in the video is as follows:

Assume the ongoing interest in the application of blockchain technology continues

Assume further that some banks identify some compelling business opportunities in deploying a cryptographically-secure shared ledger between themselves.

What is the probability that a derivative of Bitcoin or Ethereum or any other current platform will be the best solution to that specific problem?

Given that none of them were invented to solve that problem, surely it’s quite low, right?

So we could find ourselves in the situation that bitcoin and blockchain technology have catalysed an orgy of activity, that this activity has identified countless high-quality business problems and yet none of those opportunities are best addressed with the technology that triggered the excitement in the first place!

The theme of this blog is “free advice” and the free advice I’m taking from Lee’s comments includes:

First, we shouldn’t get enamoured by a particular implementation of a technology. Sure: if you have an implementation then you may have bought a place at the table. But don’t make the mistake of assuming that if the business problem doesn’t fit the technology then it’s the business problem that needs to change!

Secondly, if you’re working in a financial institution, be careful to distinguish between the principles embodied in these technologies. Shared ledgers? Yes. That seems to be at the heart of this domain. Indiscriminate replication? Perhaps. Cryptographically-secured access down to the “row” level? Probably. And so on.

Thirdly, consider the complexity of banks’ existing IT environments. An idealised, “wouldn’t the world be perfect if…” solution is no use to anybody if it requires the whole world to move at once and/or if there is no credible migration path. This points to a need to listen to the incumbents when they object. Furthermore, consider the non-functional requirements which are simply a given in this space.

Fourthly, if we assume that today’s current hyperactivity will lead to a new understanding of the possibilities for banks but don’t assume that today’s blockchain platforms (permissioned or permissionless) are the (whole) answer, then surely we’re back in the land of engineering, architecture and hard work? Perhaps this means that the combination of persistence, data models, APIs, consensus, identity and other components that we need won’t all come from one firm. So a common language, some common vision and an ability to collaborate may become critical. Where is your distinct differentiation? Where would you fit in an overall stack?

My take is that yes they can. And the reason is because Bitcoins are not the same as Bitcoin.

Bitcoins are currency units that can be owned and transferred using the Bitcoin network. Today, they trade for, say, $600 and their exchange rate with other currencies is, currently, very volatile. Ron is quite right to imply that we have no idea what one Bitcoin is worth and, regardless of what a “fair” value might be, one can expect a violently random walk on the path to that value. Frankly, it’s a mug’s game trying to predict it and it is my intent never to comment, speculate or otherwise comment on this side of things. It simply isn’t all that interesting. And I think Ron is right to inject some calm into the debate (this post is not a criticism of him!)

But I think that he may also have rather missed the point. The innovation of Bitcoin isn’t the creation of a new asset class or a get-rich-quick scheme – Bitcoins as a currency are just one application for the core technology of the Bitcoin network.

And as an architect, it is this underlying architecture that I am focussed on: the underlying genius of Bitcoin is the invention of a globally distributed and decentralised digital asset register, enabled through a stunning breakthrough in computer science: distributed consensus. It is an open platform for money, if you like.

And I think that is the key insight: in public debate, we need to distinguish between a particular application of the Bitcoin network and the network itself.

In other words, think of Bitcoins – the Bitcoin currency – as like a dotcom stock. Perhaps it is amazon.com. But it could also be pets.com. Who knows. Frankly, who cares?

But the Bitcoin network, should be thought of as analogous to the world-wide web itself: the enabling technology.

The lesson I take from history is that it was the platform that changed the world – and that’s why my focus is on the bitcoin network, not the random gyrations of the bitcoin currency.

(Disclosure: I never thought I’d have to write this but the recent price moves mean that, notwithstanding all the discussion above, I feel honour bound to disclose that I own a very small number of bitcoins.)